Why does the UK get a rebate to EU contributions?

The UK as a member state of the EU must contribute to the funding of the EU (See How much does the UK contribute to the EU?.

However, the UK receives a rebate on its contributions. This is a sum of money deducted from the contribution value prior to payment. Therefore the rebate funds do not leave the UK and are never paid.

The UK argued for the rebate, which was introduced in 1984, because at the time it was the third poorest member of the Community but on course to become the biggest net contributor to the EU budget.

The main reason for this was that the UK had relatively few farms, so it got a small share of farm subsidies, which at the time made up 70% of budget expenditure.

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In 1984, the formula for determining how much a country paid into the Community budget was also unfavourable to the UK due to its emphasis on VAT-related income. The UK was in effect penalised for raising more revenue from VAT than most other member states and importing more goods from countries outside the Community.

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The rebate is equivalent to 66% of the UK’s net contribution in the previous year and is paid for by the other 26 member states as a roughly equal proportion of their economy.

Source: www.bbc.co.uk/news

How much does the UK contribute to the EU?

EU member states must contribute financially to the overall funding of the EU. The European Commission puts forwards a budget which is approved by the European Parliament before the start of each year. The vast majority will be spent on aid to farmers, rural development and aid to poorer regions.

It has been widely reported that the UK gives £350 million per week to the EU.

This figure has been scrutinised and found to be misleading by the UK Office for National Statistics. They found for the last officially available accounting period (2014):

• The UK’s official gross payments to the EU amounted to £19.1 billion
  • This is 2.4% out of total UK government spending of £798 billion
• The UK is eligible for a rebate of its EU membership cost of £4.4 billion
  • This rebate sum never leaves the country
  • £14.7 billion was the UK’s 2014 annual contribution towards the EU
• £4.8 billion of EU funding that year was sent back to the UK
  • These funds included £1.1 billion which came back through the European Regional Development Fund and £2.3 billion through the European Agricultural Guarantee Fund.

UK government’s net contribution to the EU – that is the difference between the money it paid to the EU and the money it received – was £9.9 billion in 2014.

This equates to £190 million per week – in other words, 42 pence per UK person, per day.

These figures exclude money from the EU that also comes back to the UK private sector (for example to fund research in UK universities). This was valued slightly lower still.

Source: ons.gov.uk (Visual Analysis of the funding)

Source: www.statisticsauthority.gov.uk

Does the UK have to leave the EU before negotiating trade agreements?

Under EU rules, EU member states cannot make separate trade deals with individual member states or non-EU countries on their own.

However, there is no legal precedent for a country to leave the EU and therefore need to renegotiate any trade agreement.

It is unclear whether invoking Article 50 would result in a change to the UK’s membership status, and therefore permit trade negotiations to begin with the EU and other non-EU countries (including those who already have agreements with the EU).

Source: www.bbc.co.uk/news

 

What trading agreements will the UK need to negotiate?

The UK currently benefits from a number of EU trade agreements that have been negotiated with over 50 countries. EU agreements with a further 67 countries are currently under negotiation, including the US (known as the TTIP), Japan and India.

On leaving the EU (post Article 50) the UK would need to negotiate a trade deal with the EU (acting on behalf of the remaining 27 member states), and any non-EU country, that it wishes to trade with.

The UK will also need to update the terms of its World Trade Organisation (WTO) membership where the commitments have previously applied to the EU as a whole. This would mean negotiating and agreeing updated UK schedules of commitments with all 161 other WTO members. Until the UK’s schedule of commitments was updated, there would be a lack of clarity surrounding the UK’s rights to access WTO members’ markets, and the UK’s ability to enforce those rights.

Source: www.gov.uk ) (HM Treasury analysis: the immediate economic impact of leaving the EU page 28)

Source: ec.europa.eu (European Commission list of Free Trade Agreements)

What is the EU Single Market?

The Single Market gives the UK access to the EU and facilitates access to wider markets, and works by treating the EU’s member states as a single economic area. It is founded on the ‘four freedoms’: the free movement of goods, services, capital and people. These are enshrined in the EU’s founding Treaties and the Single Market has developed progressively over the past half a century. The Single Market provides access to EU markets through three broad elements. First, it removes tariffs and quotas on goods trade within the EU. Second, it creates a customs union within the EU. Third, it creates a level playing field by reducing non-tariff and other barriers to trade within the EU.

Source: www.gov.uk (HM Treasury analysis: the immediate economic impact of leaving the EU Glossary)